The World Economic Forum, now taking place in Davos, Switzerland, has put forward the idea of a new framework for Central Bank Digital Currencies (CBDC).
The idea was conceived in collaboration with over 40 central banks, international organizations, academic researchers and financial institutions who wanted to create a framework to help central banks themselves evaluate, design and implement CBDCs.
According to the World Economic Forum, in fact, many central banks are already exploring Distributed Ledger Technologies (DLTs) to integrate it into their financial systems, but in an independent and unorganized way.
Instead, the Forum’s shared platform aims to simplify and improve these efforts by coordinating research sharing and collaboration among central banks so that a common knowledge base can be developed to guide decisions and implementations regarding CBDCs.
Furthermore, the Forum argues that DLTs have the potential to improve the efficiency, financial inclusion, resilience and security of financial systems, despite the fact that their adoption may also pose significant risks to financial stability at national and international level.
Central banks themselves are also facing some objective difficulties in closely monitoring rapidly evolving developments in this field to understand their real implications, potential and risks, which is why the Forum has brought together a community of central bank technologists from different countries to coordinate these efforts.
The aim was to develop a framework for CBDC governance in order to implement DLTs in proven use cases and in an effective, safe, responsible and inclusive manner.
This framework is the CBDC Policy-Maker Toolkit, published yesterday on the official website of the World Economic Forum, which provides high-level guidance and information for hybrid CBDCs.
The Toolkit is aimed at central bank digital currency policymakers and is intended to be a guide that provides comprehensive and careful information, in particular on the risks involved in making such decisions.
The document, a 28-page PDF, serves as a possible framework to ensure that any implementation of a CBDC takes full account of the costs and potential benefits, assessing both the risks and the different implementation and governance strategies.
While not exhaustive, it is intended to serve as a complement to further research that any policymaker should conduct nonetheless.
The Toolkit guides users through the CBDC assessment process, with descriptions for each step of the process.
The Central Bank of Uruguay and the Bank of Thailand are already using the Toolkit in their CBDC assessment processes, while the National Bank of Cambodia is already considering testing its own CBDC for its national payments system.
The Central Bank of China and the Central Bank of the Caribbean are also moving in this direction.
The Head of Blockchain and Distributed Ledger Technology of the World Economic Forum, Sheila Warren, said:
“Given the critical roles central banks play in the global economy, any central bank digital currency implementation, including potentially with blockchain technology, will have a profound impact domestically and internationally. It is imperative that central banks proceed cautiously, with a rigorous analysis of the opportunities and challenges posed. The toolkit can serve as a springboard as central banks progress with their CBDC investigation and development. The intricacies of implementing CBDC are complex and the implications are wide‑reaching. As a result, policy‑makers may find themselves in uncharted waters when attempting to evaluate the potential benefits and trade‑offs”.
Project Lead, Ashley Lannquist, added:
“We worked with almost a dozen central banks as well as prominent economists and financial industry leaders to create a common approach for evaluating and designing CBDC around the world. The toolkit is the first of its kind to provide a concise summary of the key issues for policy-makers considering general-purpose or wholesale CBDC”.
A couple of central bank governors have also commented on it.
For example, the Governor of the Bank of Thailand, Veerathai Santiprabhob, said:
“The Bank of Thailand has made good progress on a wholesale CBDC project, called Project Inthanon. From our experience, we need to identify tradeoffs between benefits from the use cases and their associated risks across different dimensions. This is where the Policymaker Toolkit could usefully provide an actionable framework for CBDC deployment”.
The Governor of the Central Bank of Bahrain, al Maraj, added:
“We will pilot the new toolkit developed by the World Economic Forum. We hope that it will be an opportunity to learn, grow and to adapt to the changes in the Fourth Industrial Revolution”.